Foreign investor sentiment towards India is showing early signs of improvement as easing crude oil prices and better-than-expected monsoon rains strengthen the country’s macroeconomic outlook. However, global capital continues to be drawn towards AI-led opportunities in the US, Taiwan and South Korea, limiting broader emerging market inflows.
“Certainly, some of the preconditions for stronger flows to India are beginning to fall into place. It’s not just crude; investors are also closely watching the monsoon rains and those have recently taken a turn for the better. That said, investor attention is currently focused elsewhere. It’s not really that India is doing anything wrong, and the overall indicators are certainly looking more positive,” he said.
There is no immediate, compelling pressure for a massive return of foreign institutional investor (FII) money to India right now, he stated.
Global investor attention is heavily concentrated on the Artificial Intelligence (AI) and semiconductor trade, particularly in the US, Korea and Taiwan, said Brandt.
He said, “the real focus at the moment is whether to stay in or get out of the artificial intelligence trade. Closely linked to that is the question of just how hawkish the Federal Reserve will be. We’re also seeing money move into US equity funds ahead of a corporate earnings season that is expected to deliver another 20 per cent year-on-year increase in earnings for S&P 500 companies. So, at least for the moment, interest in emerging markets is largely concentrated around a handful of AI-related opportunities, mainly in Korea and Taiwan. Outside of that, there is very little interest in emerging markets, with investors’ focus firmly on the US at the moment.”
“There remain a number of headwinds as long as there is such a strong focus on AI and semiconductor-related stories. Until investors become comfortable that this does not imply tougher times ahead for the software and services sector, it will remain a question mark for India,” Brandt added.
India may see some gains from passive funds as they track market caps; however, investors seeking direct or significant exposure are more likely to utilise actively managed funds, which have yet to show a meaningful shift in sentiment toward India, Brandt stated.
“Passive funds, by their nature, tend to take their cue from the market capitalisation of major companies, which have been performing better recently. As a result, the odds are that India will make some gains in terms of its share of inflows allocated by these funds. However, from a foreign investor’s perspective, India remains a market where those seeking direct exposure are more likely to invest through actively managed funds. Therefore, those funds are likely to be the key indicator of any meaningful shift in investor sentiment toward India,” he said.
Following recent earnings reports like Samsung’s, where revenue missed expectations despite strong profits, investors are becoming more cautious about the sustainability of the AI boom, Brandt explained.
He said, “the market is very nervous about signals like that. Certainly, more and more questions are being raised about how to provide the energy needed to keep AI infrastructure running and to expand it. At the same time, some company-to-company developments are raising additional concerns. However, what we’re still seeing is that whenever those worries reach a critical mass and push AI stock prices lower, there are still enough investors who view it as a buying opportunity and jump in.”
Brandt added, “the pattern has shifted from stocks soaring like a rocket to a much more measured trajectory of two steps forward, one step back. So, the issue you raised, along with several others, is definitely receiving much more attention than it did last year.”
(Disclaimer: The above article is meant for informational purposes only and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
